Inflation and growth dominated the news this week, a welcome relief perhaps from unrelenting focus on financial markets. Once more, the evidence makes it clear that weak domestic economic conditions are not relieving inflationary pressure.

In part, this is because the inflationary factors are more global than domestic. $115/bbl for crude oil affects everyone. The domestic wrinkle is that gasoline supplies are not increasing. Normally, at this time of the year, supplies build ahead of the summer season, the busiest for travel. That probably implies a break in the normal seasonal pricing pattern. Typically, the price of a gallon of gasoline goes up in the spring, as refining production works overtime to build up supply. Prices peak in late spring and slowly come down over the course of the summer. This year, less supply build-up and continued increases in crude oil prices may mean not much relief from nearly $4 a gallon.

Higher energy prices drive up transportation costs. They also drive up the price of petrochemical fertilizer. Energy, weather, and demand are driving up food prices. For example, the price of rice is twice as expensive now as one year earlier. Wheat prices have risen even faster.

Finally, even with job losses for three straight months, the price of labor was still 3.6 percent higher in March than a year earlier. In sum, prices for energy, food and labor are not allowing inflationary pressures to slow, even in a weak economic environment.

How weak? The latest data on the important Coincident Economic Indicators showed that the economy was weak but not contracting through March. And the signal from the Leading Economic Indicators was that conditions may not deteriorate, but certainly are a long way from turning around.

The domestic economy is weaker than the rest of the world, although the Leading Index for Japan has started to weaken significantly. Worries about slow growth, rising inflation, and continued credit market turmoil are not letting up. So why are stock prices rising? The BBC Global 30 index was roughly 7 percent higher in mid-April than a month earlier — with gains nearly across the board. It could simply be a reversal of an overly pessimistic market in the first two months of the year. One caveat: If markets have indeed experienced a reversal of momentum, could a new shock reverse again? New shocks can't be ruled out.

Data in the following week will play a crucial role in determining which way markets will go. The estimate of growth in the first quarter will come early in the new week. Already known is that hours worked in the quarter were down (by about 1 percent, annualized). Productivity growth may have been about 1 percent, offsetting the decline in hours. That would leave GDP at very close to no change in the first quarter, after only a 0.6 percent rise in the fourth quarter of 2007. Moreover, profits declined sharply in the fourth quarter and may have declined in the first quarter. Financial markets will certainly not perk up unless the outlook for earnings brightens.

Late in the week, another key number comes out. If jobs declined in April, for a fourth straight month, it could signal the second quarter may not be much better than the first quarter. Certainly, sustained declines in jobs will do nothing to perk up consumer attitudes or spending plans. Business sentiment and investment may not be in much better shape.